tv Nightly Business Report PBS February 11, 2011 6:30pm-7:00pm PST
>> susie: celebrations erupt as egyptian president hosni mubarak steps down, giving up his 30- year grip on power. president obama applauds the move. >> the unid states will continue to be a friend and partner to egypt. we stand ready to provide whatever assistance is necessary, and asked for, to pursue a credible transition to a democracy. >> tom: stocks move higher, the dollar strengthens and oil prices fall, as the world reacts to egypt's changes. you're watching "nightly business report" for friday, february 11. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening, everyone. sites and sounds of freedom in egypt tonight. celebrations in the streets have replaced protests, as tens of thousands of people rejoice the resignation of president hosni mubarak. mubarak has left cairo ending his 30-year one-man rule of egypt. tom, the country's military in now in control. >> tom: susie, even though egypt
still faces many challenges and there are questions about what's next for the country. the reaction in financial markets around the world was positive. the major u.s. stock averages posted modest gains. oil prices fell to a ten week low: $85.58 a barrel. gold prices also slipped down $2 to $1,360.40 an ounce. and the dollar was strong rising against most major currencies. >> susie: from the white house, president obama said the people of egypt have spoken, their voices have been heard and egypt will never be the same. and he expressed optimism about the country's future. >> i'm also confident that the same ingenuity and entrepreneurial spirit that the young people of egypt have shown in recent days will be harnessed to create new opportunity, jobs and businesses that allow the extraordinary potential of this generation to take flight. i know that a democratic egypt
can advance its role of responsible leadership not only in the region, but around the world. >> susie: also today, switzerland's government froze any assets in its banks that might belong to mubarak or his family. a spokesman for the swiss foreign ministry declined to say how much money is involved. >> tom: in washington today, the focus was on revamping mortgage giant's fannie mae and freddie mac. treasury secretary timothy geithner says it could take five to seven years to unwind the government's role in the mortgage market. geithner laid out that time table as he unveiled options to overhaul the deeply troubled companies. darren gersh examines what a new government role in housing will mean for homebuyers and anyone making a living in real estate. >> reporter: the new direction for housing laid out by treasury secretary timothy geithner hinges on a government that is far more careful about who it helps and how. >> i think it is absolutely the case that the u.s. government provided too much support for housing, too strong incentives
for investment in housing and we just took that too far. >> reporter: $150 billion too far. that's how much it's cost taxpayers to support the shaky mortgage giant's fannie mae and freddie mac. in a report today, the treasury laid out three options to reform the housing market to make sure another bail out never happens. they include strictly limiting the government's role in housing to guaranteeing mortgages for low and moderate income americans; supporting the mortgage market directly, but only in times of stress or providing so-called catastrophic insurance on mortgage securities that kicks in after private investors take losses. james lockhart used to head the government office regulating fannie and freddie. he says the last option would do the most to protect taxpayers. >> a direct guarantee is keeping the government too involved in the housing market. at this point, they have almost 90% of the mortgages that are
being originated and we really got to start weaning the housing market off the government. >> reporter: as soon as october, the treasury wants to lower the so-called conforming loan limit on mortgages fannie and freddie will buy to $625,500. and as the government pulls back from the mortgage markets in coming years, lockhart says mortgage rates will adjust. >> mortgage rates might go up a little bit, but my sense is for the average home owner, it shouldn't make a great deal of difference. >> reporter: under the reforms laid out today, real estate developers will also find government support shifting away from single family homes and towards apartments and affordable housing. the overall government role will also be smaller says brookings scholar douglas elliott. >> we know directionally, after the next couple of years, the real estate business will look a lot better than it does now, but it won't look as much better as it would have, if the government continued to provide the massive support.
>> reporter: banks may be the big winners in all this. as the government gets out of the mortgage market, they are expected to pick up business. though, if reform works as advertised, banks will also pick up the housing market risk now carried by taxpayers. darren gersh, "nightly business report," washington. >> tom: here are the stories in tonight's n.b.r. newswheel: mubarak's ouster helped u.s. stocks move modestly higher. the dow rose almost 44 points, the nasdaq added 19 and the s&p 500 tacked on seven. trading volume pulled back ahead of the weekend, falling to just below a billion shares on the big board, two billion on the nasdaq. the u.s. trade gap widened as we wrapped up 2010, rising almost 6% in december to $41 billion. for the year, the trade deficit jumped nearly 33% to half a trillion dollars.
so how are you feeling? well, the latest survey on consumer sentiment says you're feeling a better about the economy. the reuters university of michigan index read 75 this month-- its highest level in eight months. >> today federal regulators filed civil charges against three former executives at indy mack bank. former c.e.o. michael perry and two financial officers were charged with misleading investors about the health of andy mac's finances. sour home loans led to indy mac's collapse in 2008. still ahead, we'll see if tonight's market monitor guest is still bearish on the u.s. market. he's frank cochrane president of investment timing consultants. >> susie: the world's growing appetite for food is sending grain prices through the roof. investors are taking a closer look at those grain commodities and wondering just how to cash in. as diane eastabrook reports, many are doing it through mutual funds and exchange traded funds or e.t.f.'s.
>> susie: the world's growing >> reporter: fortunes are made and lost in chicago's futures trading pits. and with grain prices on a tear, veteran futures trader scott shellady says it's been a stomach churning time. >> you have to stay on your toes because it's a much more difficult game. >> reporter: in recent months retail investors have been pouring billions of dollars into the grain markets. some are investing in exchange traded funds or e.t.f.s. powershares d.b. agriculture and ipath dow jones a.i.g. grains are among the most popular. they trade a basket of different grains. others like the new teucrium corn commodity invest in only one grain. brett manning follows commodity e.t.f.s for briefing.com. he says single grain etfs can be risky if the futures price for the underlying commodity keeps rising. >> as those contracts expire the e.t.f. that is holding those contracts is going to have to sell one for one month and buy it for the next month. so in a situation where those prices are gradually sloping higher it's going to have to sell something at a lower price
and buy something at a higher price. and that is a cost to the fund. >> reporter: commodity mutual funds are another option. harbor commodity real return and pimco commodity real return invest in futures contracts, notes and bonds. other funds like fidelity global commodity stock invest in companies that produce, mine, or refine commodities. morninstar's katheryn young says equity funds appeal to more risk averse investors. >> the advantage of going into stocks is that you're getting income and cash flow producing capabilities that you can value your investment where at many times a commodity investment is the value is what other people are willing to pay for it. >> reporter: brett rentmeester is a managing director for altair advisors. he likes commodities as an investment, but warns clients not to get caught in the euphoria of any particular one. >> i think there is a tendency for people to want to chase good performance and i guess we would caution them in most cases to not chase what's done the best recently and take a more balanced approach.
>> reporter: rentmeester says most retail investors probably shouldn't devote more than ten percent of their overall portfolio to commodiites. diane eastabrook, "nightly business report," chicago. >> tom: there are lots of different types of commodity exchange traded funds. graham tuckwell put together one of the first commodity e.t.f.s in the world. he's founder and c.e.o. of e.t.f. securities. we caught up with him recently and began by asking if commodity e.t.f.s are appropriate for all investors. >> no, they're not. certainly the precious metals that are backed by physical metal in a vault, very easy to understand. i think they're entirely appropriate for the retail community of all types. i think people do understand, you know, gold and silver and perhaps platinum. the other commodities, based on energy and agriculture, cannot be put together having just
storage. you can't store oil in a vault, nor corn or anything like that. so they really need to be priced off the futures market, and unless people understand what actually drives the price, unless-- they shouldn't be near the markets. >> tom: how do you answer critics who say commodity-backed exchange traded funds add to the price of inflation of those commodities because as the price moves higher, funds have to buy more of that commodity to back up the fund. >> that's not what we've seen in most of our funds. the investors in our funds, when the price goes for a bit of a run, tend to sell their redemptions, so metal can, for example, come back on the market. often when there are dips in the price, they'll come in and buy. so if anything, it tend to be a dampening of the price impact on a short-term trading basis than an exaggeration of it.
that said, the longer term picture, where you've got increased demand over a longer period of time necessarily does increase the price. for example, the price of gold is higher on a dollar-per-ounce basis today than it would have been had there not been any establishbecause there's simply more demand. >> tom: you have been at the beginning of creating commodity e.t.f.s. do you have any sense if the supply of commodity backed e.t.f. funds is running dry? >> you'd see there are gaps, for example, industrial metals we have in the u.k. and europe are not yet here. they're in filing. and they may be coming out soon. >> tom: what do you think is driving the interest in commodity-exchanged-traded funds. >> certainly the precious metals market. i think there has been a lot of demand for gold companies or
resource companies where people have been trying to get exposure to the metals but they haven't been able to do it, and, therefore, they bought the equities. and i think people recognize putting together portfolios with some element of commodities is a useful thing to do, as long as they can do it in a simple, transparent form. people don't want to go on to the futures market. if they do, they've been able to do that for years and years and years.
>> tom: heading into the weekend here, we did see on this friday stocks gained momentum throughout the day. let's get you updated on tonight's market focus. >> tom: stocks gained momentum throughout the day, shrugging off any worries about egypt. the gains were enough to take the three major indices to new post-recession highs. the dow industrials continued to see buyers this week, gaining 1.5%. the nasdaq did about the same moving higher four out of the past five sessions. the s&p 500 gained 1.4%. financial stocks led the rally today, helped out by the white house ideas to reduce the role of uncle sam in the mortgage market. mortgage insurers saw buyers with that news. genworth offers life insurance and mortgage insurance. it led the s&p 500 financial
sector with this 4.4% gain. it is closing in on what has been an area of resistance since august, just above $14 a share. genworth wasn't alone. m.g.i.c. jumped almost 10%. volume quadrupled. radian group rallied 13%. and p.m.i. group was up 3% on the prospects they may see more business if the government scales back. a group of restaurant stocks were moving today including panera bread. this is a new 52 week high thanks to a 16% rally. volume was 10 times normal. it raised its outlook after it reported better than expected earnings. it was also better than forecast results at chipotle mexican grill behind its 5% rally. this times the stock to a new high as well. still, analysts at morgan stanley and bank of america merrill lynch downgraded their ratings though.
leading consumer stocks was casino operator wynn resorts. strong business in las vegas and continued growth in macau china fueled its latest quarter. the stock responded with a 7% jump up to a new 52 week high. as we previewed last night, nokia's big strategic shift was announced today. it will use microsoft windows for its smartphone software. nokia will also feature microsoft's bing internet search service. and nokia will reorganize itself into two divisions-- mobile phones and smart devices. nokia continued to sink though off another 14% today, in the past two sessions, it has lost a fifth of its value. this is a 90 session chart. three other movers-- clorox hit a new high after it was disclosed investor carl icahn has a stake. conoco rallied after boosting
its dividend and stock buyback plan. and the rally continues at j.d.s. uniphase at a new five year high. it was a brisk pace of initial public offerings this week. the biggest came today with energy company kinder morgan raising almost $3 billion. it started today at $30 and saw a 3.5% pop. real estate investment trust summit hotels started trading at $9.75 per share. it's just a nickel above that tonight. specialty finance firm imperial holdings closed above its i.p.o. price of $10.75. and that's tonight's market focus.
>> susie: a vote of confidence today for a potential merger between the german and new york stock exchanges. new york city mayor michael bloomberg said he's bullish on the tie-up and calls it the right thing for the city. he also says it would force european companies to use u.s. accounting standards and their strong disclosure rules. if the deutsche borse buys the nyse-euronext. it would create the world's largest stock exchange. we're hearing the nyse board will meet sunday to discuss the offer. >> tom: here's what we're watching for next week: our friday market monitor guest is joe battipaglia, market strategist at stifel nicolaus. on monday, the white house releases its 2012 budget. later in the week, we'll get the january reports on retail sales and leading indicators. monday, kipplinger's kevin mccormally is back with tax tips. he explains how you may be able
to file for free this year. >> susie: uncle sam says there are major safety issues with the trans-alaska oil pipeline. reuters got its hands on a letter from the department of transportation to the pipleline's operator alyeska. it warns the 800-mile system has many weak spots and continuing operations is risky until repairs are made. the letter follows a january leak that shut the pipeline down for several days. the trans-alaska delivers 12% of the u.s.'s oil supply. >> tom: are you feeling the pinch at the pump? gas prices hit their highest level so far this year averaging well above $3 a gallon nationwide. "triple a" says prices are just shy of $3.13 a gallon across much of the country. that's about 3.5 cents above this time last month and almost 50 cents more than last february. many analysts believe we'll be paying upwards of $3.50 a gallon come summer.
>> tom: why are you worried about when the fed is due to stop buying bonds the middle to the end of the year? the fed has basically enabled this entire rally, in my opinion. certainly if you look back at history, the last 10 years or, so the market has really gone nowhere but the fed entempted to enable it in early 2000, and we had a rally and then we look at the crash from 2007-2009. it never really worked out. from that perspective, i don't think of it in terms of the longer term view that that's going to work out very well. >> tom: your thought is when it comes to the end of the bond-buying binge that will be first exit strategy we've seen from the fed in the post-recession period and that's what makes you worry. >> that's right. and it stops the end of june. and we'll see how that goes. i don't think that coupled with what congress is doing, those two things, are going to cause the market to move lower over the course of the next few years. >> tom: meantime we're in the midst of a pretty nice bull run. the s&p 500 up 6%.
>> it's gone much father, much greater than i thought, but this constant enabling that's going on, once i think that stops, the party's over. >> tom: and how far and how fast do you think that the market could fall? >> first of all, i think you could see a little more upside here. i wouldn't be surprised if we got to 1360, and the absolute high on the s&p say 1515, russell could move up to 850, 860. post-june, looking out into, say 2012, and beyond, i wouldn't be surprised if we see eventually a total retracement of the move that we had starting back in march of '09. >> tom: a total retracement. you like cash best but you also brought along fund ideas including the silver exchange-traded fund backed by silver. why do you like this commodity? >> i think it's the place to put money. if you believe it is inflationary what the fed is doing, and i do. it hasn't gone up that much--
although it is up quite a bit, i wouldn't be surprised back to 50 from the 30s sglomt green haven continuous commodity index fund, gcc, a mix of agriculture commodities. why go ag? >> because it's, again, the inflation play. it's soft commodity play and i think that's the way to go as far as over the course of the next year or so. >> tom: and you're not picking any one commodity here. it's a basket. >> exactly. >> tom: you also like the canadian dollar. commodity play, inflation play. are you bearish on the u.s. dollar? yes, having been from canada, i think canada has it going. it's another commodity. again, for the course of the next six months to a year or so. >> tom: by the way, what kind of holding timeframe do you think for these? >> i would say into the end of this year. after that, i think next year will be material changes from that but i think you'll see almost a parabolic with respect to these ggz going into
december. >> tom: summer you're expecting retracement from the big move that we've seen lately, longer term. all right, your previous picks. let's take a look at these. you were very bearish in june when you were here last night. >> correct. >> tom: you were long r.w.m., which shorts the russell 2000, down by more than 20%. you're long in e.t.f. that shorted the s&p 500 down by 20%. do you still like any of these, even after these losses? >> yes. in terms of then i said 70%, 80% money market, t-bills, that type of thing. i would still have that. i would hold on to them. yes, they could go against you a little bit father, but i think in terms of duration or time we have left, i think a few more months and then it's all over. >> you also had the currency euro spund fundup by about 9%. you were shorted so you lost that much. >> that's correct. bearish on the euro longer term, and if you bought that then, i would hold on to it now. i don't think there's much upside here. maybe up to 140--.
>> tom: despite lossing still staying bearish. >> that's correct. >> tom: any disclosures. >> no, i owe none of these. >> susie: and finally tonight, there's a fashion faux pas bubbling up at new york city's annual fashion week. diet pepsi introduced a new look just for the event. it says the taller, quote, "sassier" can celebrates the beautiful and confident women of fashion week. but some people are opposed to the new look disagreeing that skinny is better. tom, you can judge for yourself next month, when the slim cans go nationwide. >> tom: we'll see if it fattens up the bottom line at pepsi certainly there as well. that's "nightly business report" for friday, february 11. i'm tom hudson. goodnight everyone and have a great weekend. you too, susie. >> susie: good night, tom. i'm susie gharib. we hope to see all of you again next week. "nightly business report" is made possible by: